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Canadian dollar update – Wednesday June 17, 2020. US data turns up equity heat; Fed's Powell blows cold.

Canadian dollar update – Wednesday June 17, 2020. US data turns up equity heat; Fed's Powell blows cold.
Arif Harji
by Arif Harji on June 17, 2020

CURRENCY MARKET UPDATE

FX & market recap:

US economic data and Fed Chair Jerome Powell offer opposing views of the economy. Equity traders are tracking the data, while FX traders follow Powell. Equity traders see the recent blow-out US nonfarm payrolls report, and yesterday’s better-than-expected Retail Sales data as evidence of for robust economic rebound and buy stocks.

FX traders are listening to Mr. Powell. He repeated his dovish comments from the FOMC meeting to Congress yesterday saying that despite some indicators pointing to stabilization, “the levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery.” Fed Vice Chair Richard Clarida echoed Powell’s sentiments in a speech in NY. Both officials expressed concern about the path of the COVID-19 outbreak.

Canadian dollar highlights:

USD/CAD opened little changed from yesterday’s close. USD/CAD was weighed down by steady to firm crude oil prices and comments from Bank of Canada Governor Tiff Macklem. The Governor seemed to have a more optimistic outlook for the domestic economy. He told the House of Commons Finance committee that the BoC expects “economic growth to resume in the third quarter.”

Canada inflation data is on tap today. May CPI is expected to rise 0.7% from -0.7% in April, with a jump in gas prices being blamed for the increase. The data should not have an impact on FX.

Euro highlights:

EUR/USD traded quietly until mid-morning in Europe, when it dropped from 1.1293 to 1.1225, in early NY trading. Eurozone inflation data did not have any impact on prices. May CPI fell 0.1%, as expected. Trader’s ignored small gains in equity markets and focused on concerns about a second wave COVID-19 outbreak.

British pound highlights:

GBP/USD traded in a relatively calm 1.2525-1.2587 range. Traders have gotten over their disappointment after the EU and UK did not extend the Brexit transition period. UK CPI, PPI, and Retail Price Index data were weak, but not an issue. Instead, prices traded with broad US dollar sentiment.

Asia Pacific highlights:

USD/JPY bottomed out in Asia, touching 107.18 and then rallied to 107.43, in part due to a bounce in US Treasury yields and higher equity prices. 10-year Treasury yields climbed to 0.759% from 0.728%.